442 F.

3d 1273

UNITED STATES of America, Plaintiff-Appellee,

v.
Gregg M. PALEY, Defendant-Appellant.
No. 05-13422 Non-Argument Calendar.

United States Court of Appeals, Eleventh Circuit.

March 15, 2006.

Howard M. Srebnick, Marcos Beaton, Jr., Black, Srebnick, Kornspan &

Stumpf, PA, Miami, FL, for Paley.
Stephen Schelessinger, Anne R. Schultz, Asst. U.S. Atty., Madeleine R.
Shirley, Miami, FL, for U.S.
Appeal from the United States District Court for the Southern District of
Florida.
Before TJOFLAT, CARNES and HULL, Circuit Judges.
PER CURIAM:

Gregg Paley pleaded guilty to misprision of a felony in violation of 18 U.S.C.

4 and was given an 18-month sentence. Paley was involved in laundering the
proceeds of a friend's drug sales in violation of 18 U.S.C. 1956(a)(1)(B)(i).
One of his laundering schemes was an investment in the stock of a privatelyheld company, and the stock appreciated significantly in value. The district
court, in calculating the total amount of the laundered funds for which Paley
was accountable under United States Sentencing Guidelines 2S1.1
(Nov.2004), included the appreciated value of the stock, instead of just the
initial investment amount. We reverse.

I.
2

Paley, an attorney in Boca Raton, Florida, and drug dealer Brian Rowland,
engaged in two separate money laundering transactions. First, they bought a
fishing boat together for $120,000. Rowland contributed $60,000 of his drug

proceeds toward the purchase price, and Paley financed his $60,000
contribution. Paley was listed as the sole owner on the vessel's title. Paley
concedes that he should be held responsible for laundering Rowland's $60,000.
3

Second, Paley and Rowland invested $20,000 in the stock of a private company
that was one of Paley's legal clients. Rowland contributed $15,000 of that
amount, with Paley contributing the remaining $5,000. The company
eventually repurchased Paley and Rowland's shares for $120,000. Paley issued
Rowland a check for $103,000 for his share of the investment. It is not clear
from the record why Rowland, who had supplied 75 percent of the initial
investment, received 89 percent of the proceeds. In any event, Rowland then
rewarded Paley for investing his drug proceeds in such a lucrative asset by
paying him an additional $40,000.

Paley's position is that for sentencing guidelines purposes he should be held

responsible for the $15,000 initial investment by Rowland, the $40,000 that
Rowland paid him, and the $60,000 that Rowland contributed to buying the
boat, which adds up to $115,000. He should not, he insists, be held responsible
for the $88,000 appreciation in value of Rowland's share of the investment
($103,000 proceeds minus $15,000 purchase price). The issue we must decide
is whether the district court correctly held that Paley was responsible for the
appreciation in value of Rowland's share of the investment to $103,000, and
therefore $163,000 in total, factoring in the $60,000 from the boat transaction.

II.
5

In deciding this issue we have to consult four guidelines provisions. We begin

with U.S.S.G. 2X4.1, which provides that the base offense level for
misprision of a felony is nine levels lower than the offense level for the
underlying offense. The offense underlying Paley's misprision conviction is
money laundering, which is covered by U.S.S.G. 2S1.1. Because Paley was
only involved in laundering money and not in the substantive drug offense that
generated the money to be laundered, subsection (a)(2) of that section applies.
See U.S.S.G. 2S1.1(a)(1)-(2). That provision specifies that the base offense
level for Paley's crime is eight plus the number of offense levels corresponding
to the "value of the laundered funds" as provided by the table in 2B1.1. Id.
2S1.1(a)(2). The table sets the base offense level for various property offenses
such as theft and forgery according to the amount of loss. Id. 2B1.1(b)(1).
That is where the amount of the appreciation in the value of the investment
comes in. Finally, because Paley knew the laundered funds were drug proceeds,
2S1.1(b)(1) applies to add six offense levels.

The graduated table in 2B1.1 provides that the offense level for $163,000
the number which includes the full amount of the stock's appreciationis ten.
Id. 2B1.1(b)(1)(F) (applying to a loss of more than $120,000 but not more
than $200,000). Add to that the base offense level of eight as directed by
2S1.1(a)(2) and the six offense levels provided in 2S1.1(b)(1) and then
subtract nine levels per 2X4.1, and you get an offense level of 15. With a
criminal history category of I, the resulting sentencing range is 18 to 24 months.
That is the guidelines calculation the presentence investigation report used, and
the district court adopted it after overruling Paley's objection to the amount of
the laundered funds. The district court sentenced Paley to 18 months, the
bottom end of the guidelines range.

If Paley is correct that he should have been held responsible for only $115,000,
the guidelines range drops six months on both ends. The table in 2B1.1
provides that the base offense level for $115,000 is eight. See id. 2B1.1(b)(1)
(E) (applying to a loss of more than $70,000 but not more than $120,000).
Therefore, the total offense level would have been 13, and the resulting
sentencing range should have been just 12 to 18 months.

III.
8

We review the district court's determination of the facts concerning the amount
of money involved in a money laundering scheme only for clear error. United
States v. Martin, 320 F.3d 1223, 1225 (11th Cir.2003). We review the district
court's interpretation of the sentencing guidelines de novo. Id. Because Paley
preserved this issue by timely objection in the district court, if there was error
we will reverse unless it was harmless. United States v. Paz, 405 F.3d 946, 948
(11th Cir.2005).

A.
9

Our holding in United States v. Barrios, 993 F.2d 1522 (11th Cir.1993),
persuaded the district court to include the appreciation in value of the stock in
its calculation of the "value of the laundered funds" as required by 2S1.1(a)
(2). Barrios involved the application of 2S1.1 before its amendment in 2001.
In that case, the defendant Barrios sent $595,000 of his drug proceeds to Jose
Nasser who deposited the funds in bank accounts in three countries. Id. at
1523-24. Some time later, Nasser issued ten checks totaling nearly $675,000 to
Barrios, who then gave them to Nicholas Cure to deposit in an offshore bank.
Id. at 1523. Barrios argued that he should be held responsible only for the
initial deposit of $595,000, and not for the $675,000 amount, which included
nearly $80,000 in interest earned while the funds were on deposit with the

banks. Id. at 1523-24.

10

The pre-2001 amendment version of 2S1.1 contained a graduated table that

provided for an increase in the base offense level if the "value of the funds
exceeded $100,000." E.g., U.S.S.G. 2S1.1(b)(2) (Nov.1992). Of importance
for Barrios was that $600,000 was the break point between applying a four
level enhancement or a three level enhancement. See id. 2S1.1(b)(2)(E). The
district court in Barrios included the $80,000 in interest earned on the drug
proceeds in calculating the value of the funds pursuant to the former 2S1.1(b)
(2). 993 F.2d at 1524. This Court affirmed. Id.

11

In doing so, we focused on the meaning of the term "funds." See id. We noted
that a district court is "`required to consider the total amount of funds that it
believed was involved in the course of criminal conduct.'" Id. (quoting United
States v. De La Rosa, 922 F.2d 675, 679 (11th Cir.1991) (reviewing for clear
error district court's determination of the amount of money involved in a money
laundering operation)). We also agreed with the Tenth Circuit that "funds"
"`obviously refer[s] to funds that are used by the defendant in an unlawful
monetary transaction.'" Id. (quoting United States v. Johnson, 971 F.2d 562,
575 (10th Cir. 1992)).

12

Our holding in Barrios that the interest was properly included in the "value of
the funds" turned on the fact that "whatever interest was earned on the original
drug proceeds ... stayed with the funds throughout the remainder of the
laundering process." Id. In short, the interest "became part of Barrios'
continuing money laundering scheme." Id. We rejected Barrios' argument that
including the interest "distort[ed] the magnitude of the criminal enterprise
involved" because "including interest in this case gave an accurate reflection of
the size of the money laundering scheme." Id. at 1525. Finally, we stated that
the public policy against money laundering was furthered by including the
interest "where that interest was combined with funds which thereafter
continued through laundering transactions." Id.

13

The district court in the present case thought that under our 1993 decision in
Barrios the return earned on criminally derived funds must be counted as part
of the funds involved in money laundering. In 2001, however, 2S1.1 was
amended. The amended version, which applies in this case, no longer uses "the
value of the funds" as a specific offense characteristic. Instead, 2S1.1 now
provides that the "value of the laundered funds" should be used in determining
the offense level. U.S.S.G. 2S1.1(a)(2) (Nov.2004) (emphasis added). The
commentary to the amended provision defines "laundered funds" as follows:
"Laundered funds means the property, funds, or monetary instrument involved

in the transaction, financial transaction, monetary transaction, transportation,

transfer, or transmission in violation of" the money laundering statute. U.S.S.G.
2S1.1 cmt. n.1.
14

In United States v. Martin, 320 F.3d 1223 (11th Cir.2003), we recognized that
the change from "value of the funds" at issue in Barrios to "value of the
laundered funds" in the revised 2S1.1 could affect the money laundering
calculation. In that case, the defendant, Martin, deposited a stolen check
totaling just over $380,000 into an attorney trust account that he maintained.
Martin, 320 F.3d at 1225. A few days later he wrote nine separate checks
totaling about the same amount and then used those checks to obtain cash or to
purchase cashier's checks and certificates of deposit for his family, friends, and
others. Id. In total, Martin engaged in 97 separate transactions totaling over one
million dollars. Id. In calculating Martin's sentence under the former 2S1.1,
the district court used the total amount instead of the $380,000 from the initial
stolen check. Id.

15

Relying on Barrios, this Court rejected Martin's argument that "the `value of
the funds' necessarily means the amount of money originally injected or infused
into the money laundering scheme.'" Id. at 1226. We held that "[b]y adding
together the individual transactions for which [Martin] was convicted, the
district court's calculation accurately reflected the scope of the criminal
enterprise because each of the 97 money laundering counts constituted a
separate harm to society by further impeding law enforcement's efforts to track
the ill-gotten gains." Id. at 1227.

16

The present case is distinguishable from Martin and Barrios because both of
those cases involved the old version of 2S1.1, not the amended version. We
specifically recognized in our Martin opinion that "[g]iven the substantial
changes to the money laundering provisions, our holding today does not apply
to the `value of the laundered funds' in 2S1.1(a)(2) of the 2001 Guidelines."
Id. at 1227 n. 3. Because, as we recognized in Martin, the 2001 revisions to
2S1.1 changed the relevant term for sentence calculation purposes from "the
value of the funds" to "the value of the laundered funds," we must interpret the
latter phrase, something that neither Barrios nor Martin do.

B.
17

"Laundered funds" as used in 2S1.1(a)(2) include "the property, funds, or

monetary instrument involved in the [money laundering] transaction." U.S.S.G.
2S1.1 cmt. n.1. This case involves funds and property, the property being the
stock that was purchased with funds and then appreciated significantly in value.

For two reasons we are persuaded that the "laundered funds" should not include
the stock's appreciation in value.
18

First, the inclusion of the modifier "laundered" before "funds" indicates that the
funds which should be considered for sentencing purposes are those that were
actually laundered. In the stock scheme at issue in this case, the funds that were
laundered by Paley are the $15,000 that Rowland contributed toward the stock
investment. The appreciation of Rowland's share of the investment to $103,000
may have been merely fortuitous or may have resulted from Paley's investment
acumen, but it was not the product of the money laundering scheme itself. It did
not convert those funds to laundered funds.

19

Second, if we were to hold that the value of the laundered funds included the
appreciation in value of an asset purchased with drug proceeds, we would open
the door to an absurd result when laundered funds are used to purchase an asset
that ultimately decreases in value. It would be unsound policy to interpret
"value of the laundered funds" in 2S1.1(a)(2) in a way that would make the
sentence in a money laundering case (or misprision case where the underlying
offense is money laundering) hinge on how successfully the proceeds of the
crime are invested. (The forfeiture provision applicable to money laundering
cases prevents the launderer and his criminal client from keeping the profits of
the money laundering operation. See 18 U.S.C. 982(a)(1) (requiring forfeiture
of "any property, real or personal, involved in [money laundering], or any
property traceable to such property") (emphasis added)).

20

Accordingly, we hold that the district court erred in its interpretation of the
sentencing guidelines when it found that Paley was responsible for the stock's
appreciation in value. Cf. United States v. Pizano, 421 F.3d 707, 727 (8th
Cir.2005) (holding that "in a money-laundering offense involving layering, the
`value of the laundered funds' is the amount originally derived from criminal
activity and then laundered, not the aggregate total of the funds involved in
each layer" and stating that "the `value of the laundered funds' should be limited
to funds originally injected or infused into the money-laundering scheme").

IV.
21

The government urges us to hold that the district court's error in interpreting the
guidelines was harmless. An error is harmless if it "did not affect the district
court's selection of the sentence imposed." Williams v. United States, 503 U.S.
193, 203, 112 S.Ct. 1112, 1121, 117 L.Ed.2d 341 (1992). The government
bears the burden of persuading us that the district court would have imposed the
same sentence even if it had not erred in interpreting the guidelines. See id., 112

S.Ct. at 1121. It points out that the district court stated that sentencing Paley to
18 months imprisonment, the low end of the range, "does adequately reflect the
seriousness of the offense and provides just and reasonable punishment" and
that the court noted that Paley could have faced a money laundering charge
carrying a potential 20-year sentence. But the district court also said that "
[t]his, quite frankly, is a difficult sentencing for the Court," and disclosed that it
was "greatly influenced by the Advisory Guidelines." Considering all of the
court's statements, we are not persuaded that the government has carried its
burden of showing that the district court would have given Paley the same
sentence regardless of its error in calculating the guidelines range. It might
have, but it might not have.
22

We note in closing that this is a good example of a case in which the district
court could have avoided the necessity of appellate review and a remand for
resentencing on this issue by explicitly statingif truethat even if the court
were wrong on the disputed guidelines issue, it would have imposed the same
sentence under the guidelines (since the sentence was within both possible
ranges) or by using the 18 U.S.C. 3553(a) factors. See United States v.
Williams, 431 F.3d 767, 773-76 (11th Cir.2005) (Carnes, J., concurring).

23

For the foregoing reasons, we REVERSE the district court's interpretation of

U.S.S.G. 2S1.1(a)(2) and REMAND for resentencing.